Proof-of-Work (PoW) is the Only Way to Prevent Corruption

There is a very fundamental reason why Proof-of-Work (PoW) is the only way to prevent corruption:

In this world, work is the only thing that cannot be hacked (faked, pretended, stolen, hijacked, abused, or manipulated), everything else can, including authority, identity, status, history, relationship, agreement, whatever.

The concept of “work” goes deep in physics or the laws of the nature. In physics, work is the energy transferred to or from an object via the application of force along a displacement. “Work” is firstly an actual application of force (rather than a mere showing of force, or even just a promise or agreement to have force), but is more than a mere application of force. It is further an actual result of applying force along a real displacement (a physical change in space). Both the “force” and the “displacement” must actually happen with causality to prove work.

In the context of Bitcoin blockchain technology, the work includes not only performing a clearly defined type of hashing, but also performing honest transaction validations accepted by others.

One who performs such work on Bitcoin blockchain is called a “node” or “miner” (which terms may have slightly different meanings depending on one’s nomenclature, but that is not the subject of this article). Bitcoin blockchain requires multiple nodes to work competitively and cooperatively.

This work cannot be pretended, nor can it be claimed by simply showing an authority, identity or status. Even if the system of a node is hacked by somebody, the perpetrator cannot perform something that can be used as a fake substitute of the actual work required. The perpetrator would still need to perform the same work, which is objectively the same regardless who performs it.

That is, PoW is not a policy that subjectively demands honesty, nor a mere agreement that recognizes certain authority, identity or status, but a physical barrier that cannot be crossed over without actually doing the required work.

In contrast, every other form of consensuses including Proof-of-Stake (PoS) is a matter of policy, is one way or another associated with something like authority, identity, status, history, relationship, or agreement, every one of which can be hacked, faked, pretended, stolen, hijacked, abused, or manipulated.

If one fails to see this fundamental difference, then there is no need for further discussions. But if one does, even if just vaguely, then the following further discussions may be helpful.

The Matter of Trust

One of the most advocated aspects of blockchain technology is that it creates a trustless environment to enable kinds of transactions that are either not possible or too expensive to perform in an environment that requires trust.

Although this characterizes blockchain technology well, there’s lot of misunderstanding about “trust” or “trustless”.

No human society, past, present or future, can function without any trust, or in a “trustless” environment. Such a society only exists in technocrats’ utopian imaginations. An economic system, in particular, will always need human trust to function, or the business will not be transacted nor will values benefiting human being be created.

Therefore, the goal is to create an economic system that properly aligns up participants’ interests to reduce, not the self interest itself, but corruption due to self interest. Such a system is not going to be a pure technological or technocratic solution, but a carefully designed economic system in which misbehavior (dishonesty, malice, illegal acts, etc.) is disincentivized due to (1) an objective requirement of real work to be performed; (2) competition; and (3) transparency. Here the element of decentralization comes into play, but is in itself not an independent factor.

One of biggest contribution made by Bitcoin’s inventor Satoshi Nakamoto is his invention of Proof-of-Work (PoW) to establish a system that satisfies the above conditions. To be effective, PoW needs to be implemented in a particular way as prescribed in the original bitcoin white paper authored by Satoshi himself.

However, Proof-of-Stake (PoS), and all other non-Pow protocols, in a sneaky way, throw away the very core of Satoshi’s invention, but still try to allure people’s “trust” under a disguise of “decentralization”, which they really are not.

With PoW, participants are not asked to “trust” the nodes to behave according to a certain agreement or policy which are designed to protect other people’s interests. Doing that would be no “invention” because that is what human societies have always been trying to do in the entire history.

On the contrary, the participants are only supposed to trust that the significant players (nodes) in PoW will at least act rationally according to their own interest.

It is the PoW’s competitive incentive mechanism in the context of the Byzantine Generals’ Problem-solving that the nodes perform their work competitively and have their work accepted by the other nodes in the system.

Bitcoin’s PoW also promotes complete transparency of the nodes. A node cannot have anonymity or even pseudonymity and still become a significant player with competitive efficiency, because nodes are interdependent and competitive, and would only be efficient in a highly connected and transparent network. Users can be pseudonymous without affecting its efficiency, but a node cannot.

This is not merely a policy with an intention, but an economic and societal (network) rule that is objectively and physically enforced by requiring nodes to perform real work and communicate the result quickly with other nodes to ensure economic benefits and the network acceptance. (If you disagree with this point on node anonymity, please refer to the original whitepaper and remember that Bitcoin core — BTC is not the true Bitcoin, but Bitcoin Satoshi Vision — BSV is.)

In PoW, the only trust one needs to have is to trust that the majority of nodes will work to maximize their own economic interests, and that nodes do not collectively and coordinately commit suicide (it would be fine even if some of them for certain unknown reason have become insane).

PoS does not have these characteristics. In contrast, with PoS everything is based on a policy, which can be manipulated.

PoS is a political system. Like politics, it requires not just trust, but a special kind of trust called ‘trust of representation’, which is to trust that others (the representatives) are going to act according to the public interest. Such a system, when acting on its own power, does not provide and cannot afford transparent verification.

PoS or other similar consensuses are essentially an attempt to fool people into believing that the “crypto lords” can form a new kind of institution that is more trustworthy than the existing institutions including the government. If PoS promoters were transparent, they should tell people straightly what they’re really claiming: “Trust us because we are better people,” but of course they do not and cannot.

The most fundamental difference between PoW and PoS

What’s the most fundamental difference between Proof of Work and Proof of Stake?

PoW is a showing of not only the past investment but also continuously ongoing honest work. Due to the continuity of work in the system, the evidence of honesty in not only the present work but also the past investment is inherently shown in the system, leaving no way to fake it or nor room to be manipulated.

PoS is just a showing of the existence of past accumulation, requiring no showing of present and future work, nor how the cumulation happened in the first place.

The cumulation may (or may not) be a result of past honest labor, but it is no assurance of present honesty. In fact it is an incentive for dishonesty. The haves will have more at stake, and they may pretend to be honest when it is favorable to them, but will always end up committing a grand dishonest act to sum up everything in their own favor. When that happens, there is, within the system, no stopping them from doing it.

Proof of Work is the only way to prevent corruption and ensure honesty. It may sound harsh and wasteful, but paradoxically it is the only way that promotes liberty, because liberty is based on truth (“the truth shall set you free” John 8:32). It is the only way that is compatible with the nature of fallen human race.

The most basic reason why all non-PoW systems are bound to fail

Fortunately, the most basic reason why PoW works and PoS or any non-PoW systems don’t is very simple, easily understandable with high-level clarity once it is pointed out:

An undisputable fact is that, regardless of how you design a system to avoid work to be part of the consensus, you ultimately cannot avoid work itself. In other words, work may not be part of the consensus, but real work still needs to be performed. But the problem is, who is going to perform that work, especially when there is a surge in the amount of work, that requires both outstanding capabilities and fortitude? Such a demand is not an exception but the normal economic reality of any system that wants to be widely adopted as part of the global economy.

Only PoW has a correct economic system to effectively incentivize more and more work to be performed with higher and higher efficiency using better and better technology. This is because with PoW, work itself is directly, objectively and intrinsically related to the economic incentive of the party who performs the work, while all other systems can only rely on an artificial policy.

To put another way, with PoW, too much work is always good news; but with other systems, too much work is bad news. We all know which system works and which doesn’t.

With the former, the system is always automatically self-adjusted to be aimed at the right target, which is to do the work that is needed, no matter what the changes are, while the latter requires constant negotiation with subjective knowledge and intentions, making the system bound to fail under conditions that fall out of the normal expectations.

It is the difference between an objective natural force and a subjective man-made policy. And the difference is fundamental and critical.

The most basic part of the work that always must be performed is transaction verification. It does not matter what system you use, Proof-of-Stake, Proof-of-History, Proof-of-Storage, or Proof-of-Space, etc., every blockchain system has to perform real work, which including verifying every transaction.

Under normal conditions, performing the work of verifying transactions may not appear to be a problem, because every consensus would have some kind of policy that allocates work among the validators.

Problem however arises when the system is peaking or overloading. Under such conditions, there is no economic mechanism in non-POW’s consensus that incentivizes nodes/validators compete for more work. It is the opposite. Nodes/validators are actually incentivized to wait for others to do the extra work, until everything returns to normal where the reward/work ratio returns to an acceptable level. Any attempt to persuade nodes/validators becomes an expensive and inefficient negotiation, requiring extra messaging and synchronization, which in turn adds on to the system load, forming a destructive feedback loop.

The frequent breaking downs of Solana network is an example for such failures.

The above problem is basic and fundamental, well recognized in economics. It is precisely the reason why communism and socialism do not work.

One might ask, why have not such failures occurred frequently on other systems? The answer is simple: so far, these other systems have not got a sufficient number of transactions to even test such conditions. It is an irony, in that their inadequacy in creating utility transactions works out to be an effective cover of their flawed designs of the system. But this can only be temporary. If they themselves don’t discover or reveal the flaws, another successful system will eventually do that for them.

From a historical perspective, BTC’s error in limiting the block size has resulted in a peculiar but persistent condition in which all the burden of the system, and therefore all the focus, is on the hashing, not transaction verification. If you consider the reality which BSV helps to illustrate, this condition created by BTC is not normal, but only temporary when there are not many transactions to be processed. But because BTC’s artificial limitation has made an otherwise temporary condition permanent, it created a strong illusion that misled most others to think that, if they can design a system that can avoid competitive hashing, they would have solved all the problems.

But they did not and cannot. Real work will still need to be performed even after the seemingly but only temporarily dominant hashing competition is removed. The real work will become more and more important and eventually dominant in the system.

And if the system can scale at all in the first place, a competitive economic system that has proper competitive incentives to efficiently perform such work will become increasingly important. By then, they will realize that they have sacrificed the most important long-term feature of PoW in order to solve a problem that even in the short term is illusory, and certainly does not exist in long-term. The only reason why people still don’t realize this is because they haven’t seen the reality of the necessary scale yet.

Besides, performing the work of verifying transactions is not the only factor that affects the scalability of the system.

Bitcoin works because it is based on Proof-of-Work

At any given time, working on any block, every node has to do actual work through the Proof-of-Work (PoW) for validation, and cannot rely on past accumulated wealth, thus avoiding the fatal weakness of Proof-of-Stake (PoS), which solidifies and accelerates unfair and uneven wealth and power distribution, which in turn inevitably leads to corruption.

Another essential characteristics of PoW is that it inherently creates a competitive environment that pushes nodes to professionalize, to innovate, and to find the most effective and efficient technological solutions to many potential problems the system may find. For example, energy efficiency is one such problem.

Even with Bitcoin Core (BTC) which has a grossly wrong composition of nodes, it is the node competition, not public opinions or social policies, that has been the primary drive to increase energy efficiency and lower the costs. With a far more optimal composition of nodes (see more below), Bitcoin Satoshi Vision (BSV) will prove to be far more effective still in making improvements and optimizations than other PoW systems.

In contrast, with the PoS, there are no economic incentives for nodes to invent, to find better ways or create better technologies. They just sit on their present accumulation to accumulate more.

In addition, PoW’s requiring the nodes to perform real work always creates something concrete, immutable, and unfeigned, and leaves it in the system to verify for various purposes not only at the time but also in the future.

For example, hashing of the block headers and constructing a Merkle tree of all transactions form a basis for Simplified Payment Verification (SPV) protocol, which, along with payment validations before the next block and unlimited chained transactions before the next block, make instant payment verification possible.

However, PoW alone does not guarantee that a blockchain that uses it will work. It only works with the right combination of other factors. Improper designs of a blockchain using PoW may lead to a system that fails to scale, which could then lead people to incorrectly think that it is PoW to blame.

In fact, the biggest danger of having improperly designed a PoW blockchain which turns out to be unscalable (read, Ethereum) is that it may eventually force the designer to change from PoW to PoS to solve the scalability problem, mistakenly believing that PoW is the culprit. In this case, PoS is not only in itself a disastrous decision to start with, but also a disaster that is waiting to happen in the future. Ethereum is the clearest example that has manifested this danger.

Blockchain security is a matter of economics

The essence of PoW and PoS is not understood in the tech world. This is not surprising once you realize that blockchain security has much more to do with economics than technology (e.g., cryptography). But once you start to look from an economic point of view, you will see why PoS is fundamentally flawed, even though it sounds perfect on paper. So does socialism and communism.

The prevailing opinions on PoS all come from idealistic technocrats who tend to have good understandings from a pure technological point of view, but don’t understand economics, nor human behavior.

Because of human pride, people tend not to acknowledge the basic fact of our human existence: mankind is a fallen race and as a result corruption (sin) is a constant factor to battle with. Any theory or system that ignores this factor (either intentionally or not) is bound to fail eventually, even though it might have significant initial successes.

Again, I point to socialism and communism, which by the way is widely misunderstood in Western societies (to such a degree that people who label socialism and communism as “evil” are themselves proud believers of the same without knowing it). It is for the same reason why much of today’s progressive thinking and philosophies have a strong appeal to human sense of justice, but will not work, and have proven not to work (I apologize if this sounds too political, but I just can’t help but pointing it out because they are fundamentally related and too few people understand it).

Proof-of-Good-Work according to the original Nakamoto protocol

Furthermore, PoW according to Satoshi Nakamoto’s original Bitcoin protocol is not merely proof of hashing, but also proof of acceptable work (i.e., processing transactions with validations accepted by other nodes), or “Proof-of-Good-Work” (PoGW). Proof of hashing is the simplest form of proof of work which objectively requires the same work to be performed regardless who performs it. But PoGW also requires the transaction processing work to be acceptable good work, verifiable by the other nodes.

Admittedly, all present forms of PoW require some degree of nodes acceptance in addition to hashing itself. But PoW as implemented in Bitcoin Satoshi Vision (BSV) is a true form of PoGW that takes the reality of competitive and cooperative economic nature of nodes into full consideration.

Today, people discuss about the blockchain consensuses with reference to the original Byzantine Generals Problem, or the “Byzantine fault” in the context of a computer system. Although understanding of Byzantine Generals Problem is a necessary step to understand PoW consensuses well, they are very different in practice.

One of the most important differences is that, Byzantine Generals Problem assumes that there is no effective communication nor collaboration among the generals other than receiving a signal, and further there is no way for other generals to find whether a particular act or signal from a general is honest or not. In contrast, a PoW blockchain especially a PoGW one has the advantage of almost instant communications among the nodes, and a transparent system that enables increasingly faster and more effective ways to discover whether a node is cheating. Honest nodes have a vested interest not to cheat, and also to make sure that other nodes do not cheat.

It is for this reason that the real PoW is far more robust than a theoretical Byzantine tolerance solution.

For example, theoretically, PoW is always subject to a 51% attack, meaning that if the system is attacked by a perpetrator that happens to have more than 50% of the power, it would be the end of the system. But in reality, Proof-of-Good-Work can withstand even a 51% attack, as long as there exists a minority of nodes that are honest and able to work together and insist on performing good work. Under such a condition, a dishonest 51% attack cannot even form a permanent fork, much less permanent damage to the honest chain. The worst that a 51% attack can cause is a reorganization of a limited number of previous blocks.

If the attacker does commit continuous power to do separate work (forming blocks with transactions) that is accepted by its own customers, the result would be two separate forks, each operating in its own sphere. But in that case, it would be a different type of attack, more akin to business competition, rather than a vicious attack. Vicious attacks are always for a one-time gain, rather than a long-term competition.

Using a burst of energy in a short period of time hoping to force illegal transactions into a blockchain protected by PoGW simply does not work. It only causes short-term inconvenience to the system and users. This has been proven to be the case multiple times on BSV blockchain when it was attacked by a certain nefarious power attempting either a double-spend or something even worse, perhaps to remove BSV as a threat to another competitive blockchain by damaging the BSV blockchain permanently. None of that worked, and none will ever, as long as there are honest nodes that are willing to continue the legitimate chain, and there are customers who give their business to the honest nodes.

On the other hand, if the so-called 51% attacker performs hashing and honest validations that are completely acceptable according to the rules, it is no longer really an “attacker”. It is another node.

Is PoW wasteful?

The main criticism of PoW is that it is wasteful.

The criticism, however, is based on misunderstandings. Wastefulness is an economic concept, and therefore a system must be measured objectively against competitive solutions or legacy solutions it is designed to replace, in order to decide whether the system is wasteful or not.

In addition to general principles of PoW, it is important to differentiate all types of PoW systems, and further inquire into this specific question:

exactly what kind of work is being performed?

In this regard, there are fundamental differences between Bitcoin Satoshi Vision (BSV) and Bitcoin Core (BTC), even though both use PoW.

Arguments have been made based on credible analyses that even the PoW of BTC is more energy-efficient than the existing financial systems.

However, BSV is a still different world, potentially far more energy efficient than BTC. If the energy efficiency argument is even true for BTC which uses 99% of its energy consumption for hashing competition and less than 1% for utility computation, then just think of BSV the original Bitcoin which will have these proportions reversed, and how much more energy efficient it will be.

It is expected that eventually most computation performed by BSV nodes will be transaction processing (not just payments but broader computation including data processing, assets tokenization, smart contracts, AI, and parallel computing, etc), with hashing being just supplemental. For a great description, I recommend an article written by John Pitts: BitCoin’s Green: BitCoin will MASSIVELY reduce the computational grid’s electric power consumption.

PoW’s unique energy/value transfer characteristics

PoW is further an extremely efficient way to transport the economic effect (value) created by consuming energy from one place to another.

Transporting value geographically is of course not new in itself, because much of the human economic activities involve such transfers. But in a specific context of PoW, something very profound is taking place unbeknownst to most people.

Through PoW, Bitcoin is absolutely a “superconductor” of such value transport. It’s hard to think of any other human activity that conducts with such efficiency. The “work” in PoW can be done in an area where the energy is not only the cheapest, but could also be totally wasted otherwise, and the resultant value instantly transported to a node and subsequently to the blockchain globally.

Among the other types of work, the one that comes closest to PoW computing is probably cloud computing in which computation can be done in a most efficient location, and the effect (value) of the computation can be transferred to any other location in the world instantly with minimal cost. Economic activities other than cloud computing, such as banking services, would compare less favorably.

However, PoW is even superior to cloud computing in this respect, in a sense that the hashing work in PoW has far less a cost burden caused by data security requirements. If you separate hashing and transaction processing, and perform them at different locations using different equipment, then the hashing component does not require sophisticated data security setup like what a modern data center requires.

Data security involves not only computational resources but human resources too. For this reason, modern data centers need to be properly equipped with such security abilities (hence at a high cost) instead of an arbitrary place where the single feat is low energy cost. In an economic sense, this part of the cost really cannot be moved to a cheaper place and then transmitted to where it is needed. But the hashing component of PoW is suitable for doing exactly that, as the transaction processing component is separate and can be placed at more strategically suitable places. In the context of energy consumption, this is an excellent combination because it is the hashing component that is criticized as being “wasteful” as it does not have a direct utility.

PoW, PoS, Howey Test and the securities law

As illustrated in Even BTC is a Security, most of all crypto are unregistered securities which shouldn’t have existed at all from a legal point of view.

The genuine Bitcoin (Bitcoin Satoshi Vision, BSV) alone satisfies the conditions for an exception of the securities according to the Howey test, thanks to its locked PoW protocol that prevents control, reissuance and manipulation by any entity or group, hidden or apparent.

PoS, however, meets the Howey test easily. POS is really “Proof of (unregistered) Securities”. And that is a major legal problem.

Securities law has a strong behavioral element which relates to the very concept of “trust”. If people are making an investment in a common enterprise because a certain kind of “trust” in the common enterprise is advertised to, received and relied upon by the investors, that’s when the law starts to suspect that it is a security rather than a normal product.

With genuine PoW, investors are not asked to “trust” the miners as a common enterprise. On the contrary, no one is supposed to trust anyone in PoW. It is the PoW’s competitive incentive mechanism in the context of the Byzantine problem-solving that the miners perform their work and have their work accepted by and in the system. In contrast, PoS does not have these characteristics.

PoW is therefore more honest in economic participation and less prone to securities fraud. For further detailed analyses, see Even BTC is a Security.

The Genesis of PoW

Although people don’t readily understand or acknowledge, the truth is that this world is ordained in such a way that the right thing is always the hardest thing to do.

This is because the whole world is based on the fundamental principle of Proof of Work (PoW) which is ordained in the first book of the Bible.

‘In the sweat of thy face shall thou eat bread…’ Genesis 3:19.

God knows that human truth has to be tested and tried.

When God created man (Adam), the man’s honesty was built-in with his nature. But man fell and has since lost that estate. The honesty was no longer in his nature, but has to be ensured through Proof of Work (PoW).

“And to Adam God said, … cursed be the ground on thy account; with toil shalt thou eat of it all the days of thy life; “ Genesis 3:17.

The ground was cursed on Adams account, and his very sustenance requires toil (work) to prove. It is the Proof of Work (PoW) ordained after the fall of man that temporarily sustained the human race, as it is the only way to ensure basic honesty.

If man didn’t work for something, his heart is always inclined to cheat. This is true not only for individuals, but also true for human organizations and societies.

The social states and PoW

America’s political system is fairer compared to others because its Constitution is predicated on Proof of Work, not Proof of Stake. At the same time, the same system is deteriorating also because gradually Proof of Stake has slipped in.

Why has socialism/communism failed? Because it loathes the principle of Proof of Work, and promotes an idea to ensure honesty using an ideology, which in turn is ensured through a consensus, which then is circularly maintained by the ideology itself.

Yet people hate the idea of Proof of Work, because it sounds laborious, and even harsh and wasteful. People have always wanted to build something else to ensure trust. The Tower of Babel was a high symbol of that effort.

The effort lives on. Here is the most recent evidence: Ethereum, the second largest blockchain, is set to give up on Proof of Work and adopt a “more efficient” consensus, namely “Proof of Stake”.

They are going to soon prove why Man (Adam) is not to be trusted for his Proof of Stake.

The PoW safeguard is the fundamental reason why the human society has not fallen apart so far.

Given the fact that the natural tendency of the mankind is to cheat, lie and reap without labor, one should not be surprised by the volatilities in the world history, but rather be gratefully surprised by the fact that the world has NOT fallen apart yet.

It is because there are always some people, honest people, who are willing to stay on the truth side, fully knowing everything is going to be tested.

But the stabilizing force may be declining. The mystery of lawlessness is already at work, only restrained by that which restrains it. If the restraining force is moved out of the way, the lawlessness will be fully revealed, unrestrained.